...as I observed, Chinese EV makers are prepared to take small margins by playing the volume game. They have huge production capacity with mainly fixed costs, highly automated with robotics, so when they produce more, they reduce their fixed cost per vehicle and able to make more money by selling more cheap cars. This is not the Western business model, which focuses on maintaining or increasing profit margin and which generally have higher administrative overheads. Most of BYD's fixed cost from plant had been subsidised previously by the Chinese Govt, so they don't have as much high interest financing debt.
...so here you see BYD is happy to sell an EV making just USD1400 in China, and able to make more money on exported vehicles even after the tariff.
...now you should be utterly convinced that 1) despite tariff, Western makes need to be cost competitive to match Chinese EVs if they want to prevent China EV domination. Fact is they rather not compete in the space and hope for Chinese EV makers to fold (some would but it won't matter because the top 3 have already got a commanding lead) 2) lithium pricing is and will continue to be a function of China because they would be making most of the global EVs, and China won't let lithium price get much higher and they can control it as they control the supply chain and vertically integrated. Even Ganfeng boss said that lithium price at the present level is ok because they can produce big volumes cheaply so there is still lots of money to be made. The same can't be said for Western lithium mines that can't produce cheap enough and have limited volume.
e.g LTR and for that matter many WA lithium mines would struggle to operate viably at SC6 price below US$1000. PLS can but its valuation can't sustain at this level with subpar pricing. Ganfeng however would be able to, because it also produces its own energy storage lithium batteries, and able to also leverage on its African and South American mines which have lower operational costs. BYD profit in EU is 10x higher than in China and even with new 30% tariffs, still makes 5,000 USD per vehicle, report says
1
BYD booth at Auto China 2024 in Beijing. Credit: CNC
BYD makes a profit of 15,400 USD on BYD Seal U in Europe, compared to 1,400 USD in China. This means BYD makes 14,000 USD more profit, referred as EU premium, on every Seal U model sold in the EU, according to a report by Rhodium Group.
On June 12, the European Commission (EC) investigation revealed that China’s battery electric vehicles (BEVs) and supply chains receive unfair subsidies. As a result, the EC has introduced provisional import duties on Chinese-made EVs, ranging from 17.4% to 38.1%, depending on the manufacturer. These new duties are in addition to the existing 10% tariffs.
According to Rhodium Group, the 30% duty on the BYD Seal U (see specs) would not be enough to make the profits on the car equal between the EU and China, meaning the playing field would still be uneven. A 30% duty would still leave the company with a 15% (5,080 USD) EU premium in relation to its China profits. This means BYD would still make over 5,000 USD more on Seal U sold in the EU than in China. That would keep the exports to Europe highly attractive.
Moreover, duties at this level would provide BYD with space to lower its prices in order to gain market share in Europe. “Our analysis of several other models sold in China and Germany indicates that even after a 30% duty, many Chinese EV models would still enjoy a strong EU profit premium,” Rhodium notes.
The report suggests that higher tariffs, possibly as high as 45% or even 55% for very competitive producers like BYD, might be needed to make exporting to Europe less attractive.
However, the tariffs might have an unwanted effect on Western automakers. Duties ranging from 15% to 30% could harm the business models of foreign companies like BMW or Tesla, which use China to export to Europe. For BMW’s iX3 SUV, the EU premium (after considering costs like shipping) is just 9%. This means that if duties exceed 9%, BMW would earn less from selling in Europe than in China. Higher duties could also disrupt the plans of companies like BMW, Honda, and Volkswagen to increase their use of China as an export hub for the EU market.
BMW-Brilliance (BMW’s Chinese joint venture) and Tesla are subjected to additional tariffs of 21% as they cooperated with EC during an investigation. Moreover, Tesla applied for further individual evaluation.
The price difference between foreign and Chinese producers is because Chinese producers get more subsidies than foreign ones, even though both get support from the Chinese government. Also, Chinese companies are more vertically integrated, meaning they handle more parts of the production process themselves, which lets them buy things at lower prices than foreign companies.
For example, BYD not only makes cars but also owns lithium mines, builds its own batteries, develops its own e-motors, owns large ocean carriers for export, and even owns a vehicle insurance company.
Comparison of China vs EU prices. Source: Rhodium Group.
Moreover, the fierce price war is pushing the EV price down in China for all automakers, especially legacies that struggle to compete with new Chinese EV startups. Volkswagen ID.4 is 50% more expensive in Europe than in China, as the German price is 46,335 EUR (50,000 USD), while in China, it is 33,500 USD for an 80 kWh version. However, Rhodium calculated only with MSRP, the real price for which VW dealers sell ID.4 in China is 182,400 yuan (USD 25,150), as can be seen here, which makes the gap even wider.
Chinese EV makers are poised to ramp up exports despite potential EU duties. Factors driving this trend include slowing growth and tighter profit margins in China’s NEV market, as well as incentivizing exports. China is eyeing the EU as a primary export destination due to its attractive market conditions and ambitious targets set by companies like BYD and SAIC-owned MG to capture a significant market share in Europe.
